Employment Tax Noncompliance Reaching Historic Numbers

As political leaders in Washington consider dramatic cuts to federally funded programs and agencies, billions in employment taxes, interest, and penalties has gone unpaid due in some part to decreasing efforts from the IRS to pursue and collect from the growing number of delinquent employers.

That’s the assessment of experts at 20/20 Tax Resolution, a tax resolution firm that specializes in helping business owners manage and resolve tax obligations when they’ve fallen behind. According to IRS data, nearly $46 billion in unpaid employment taxes and penalties were left unaccounted for in fiscal year 2015. Yet, five consecutive years of IRS budget cuts have reduced the agency’s ability to manage enforcement caseloads.

“Employers are often under tremendous financial pressure to meet tax obligations,” said David Miles, vice president at 20/20 Tax Resolution. “When they fall behind, either through financial necessity or willfully, it’s important that the IRS possess the resources to work with employers to rectify any shortfalls.”

According to the federal budget proposed by the Trump Administration in early March, the IRS budget would be reduced to $9.65 billion, a 14.1 percent cut for the fiscal year that begins in October and would mark the agency’s sixth consecutive year of budget cuts. The proposed 2017 cut goes against the stated desires of Treasury Secretary Steven Mnuchin, who believes the IRS needs more money and staff to fulfill its mission and increase revenue. For taxpayers seeking to meet their tax obligations, the proposed IRS budget cuts would result in fewer personnel available to resolve issues, slower response times and ultimately more frustration.

“It has been shown that every dollar of IRS funding returns four dollars in revenue – and as much as $10 if invested in enforcement activities,” said Miles. “Yet additional cuts to IRS funding will further erode the agency’s capabilities to realize this revenue generation.”

“A properly funded IRS provides necessary resources to garner faster, more efficient and more accurate resolutions to employer tax issues,” Miles said. “To reiterate, when fewer resources are available, the result is a reduction in decision makers, longer wait times and slower resolutions, making employers focus longer on their tax troubles and potentially even dissuading some employers from complying voluntarily.”

“Egregious” employer tax noncompliance (defined as 20 or more consecutive quarters of non-payment) has tripled over a 17-year period, according to IRS records. When collection against an employer is unsuccessful, the IRS pursues the individuals responsible for the company by assessing the Trust Fund Recovery Penalty (TFRP). In FY 2015, the IRS assessed the TFRP against approximately 27,000 responsible persons – 38 percent fewer than just five years before as a result of diminished revenue officer resources.

“It becomes a challenge for employers to seek resolution when the resources required to remedy tax issues are not available or are exceedingly difficult to manage,” Miles said. “For the sake of taxpayers and the nation as a whole, a fully supported IRS offers the best way to help employers meet their obligations.”